The cash envelope system is a time-tested budgeting technique that has been around for years. If you’re still a newbie to budgeting, you need to exert additional effort in monitoring your expenses first. You’ll have to do this until you understand your spending habits. If you’re considering a new way of budgeting, I totally recommend this cash envelope system.
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Save More Using the Cash Envelope System
I’m currently using this, which has helped me set aside more money for my savings and investments. What I love about this system is that it’s easy to follow. Literally, anyone can do this.
Monitor Your Spending Habits
This is the first step and the most commonly neglected of all. Never try to skip this part if you want to make this budgeting process a success. Remember that you can never control something you don’t measure. So try to list your expenses every day—you read that right. And then group them into categories like transportation, food expenses, utility bills, etc.
Now that you have them listed, you may now work on them. Tick off unnecessary expenses you feel you can live without, like taking a cab. If you can go to the same place by taking a bus or a jeepney ride, then do it. Imagine the extra money you can add to your savings.
Use the 20-30-50 Rule
I’ve got to guess you know this one, right? If you follow my Facebook fan page, you might have seen this so-called “20-30-50 rule.” This is a simple way to budget your money by allocating 20% to your savings before spending on your needs and wants. The remaining 50% is for your needs, and the other 30% is for your wants.
Do you know what makes saving harder? It’s depriving yourself. Come on, guys, give yourself a break. There’s nothing wrong with enjoying the fruits of your hard work. After all, you only live once, so spend it well. Just remember to do it in moderation.
Divide and Allocate Money in Each Envelope
What I usually do every payday is get a certain amount I need to budget for the next two weeks. For example, if I earn Php 40,000 monthly, excluding taxes and contributions, every cutoff will be Php 20,000. The first thing I do is get what I need, which is Php 16,000, setting aside Php 4,000 as my savings (recall the 20% thingy?). Don’t forget to insert the money into their respective envelopes.
Remember to live within your means. If you allocate PHP 2,000 for your transportation, don’t spend beyond it. This is where discipline will be enforced. Don’t touch your food envelope to buy a shirt or shoes you like. If it’s not in your budget, don’t buy it!
Transfer the Excess and Repeat
This is the most exciting part for me: checking if there’s still money left in each envelope after two weeks. By the way, I do this every two weeks because I get my earnings in a semi-monthly scheme, which most of us usually do. If you get yours every month, then repeat this monthly.
Whatever is left, I put it back into my savings account. Thus, it leverages my savings game. I know a few people who spend this unused money on their wants, but I’m not one of them. If you like, you may do that as well.
My New and Improved Cash Envelope
I’ve been using this system for quite a while now, and my brown paper envelopes have started to rip, so I decided to make a customized one. I used my old clear book, which I used when I was still in high school, and cut it to a size that could fit my bills. This is how it looks. It’s simple and durable. I hope it’ll last.
Frequently Asked Questions
Do I need to carry the envelope whenever I go out?
No, you don’t have to carry it. Just take the amount you need from the envelope.
What if I get a salary increase?
A salary increase doesn’t mean you need to increase your spending. If you can live below your salary, that’s better.
What should I do if I empty an envelope?
The true challenge of using this system is not emptying an envelope before the next cutoff. You must learn to live on your budget, but if you finish an envelope, borrow from your wants envelope. Refrain from doing this often, as this won’t help you.
While budgeting is a good start to managing your money efficiently, this may not be enough to achieve financial freedom. So don’t just save. Also, invest in financial vehicles that can accelerate and help you achieve your goals. You may consider building a financial footing with a life insurance plan from Sun Life called Sun Maxilink Prime. This will help you financially secure your future while growing your money.
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Federico is an electronics engineer, financial blogger, insurance agent, and a certified investment solicitor. A multi-awarded financial advisor with clients ranging from lawyers, doctors, engineers, accountants, business owners, company directors, and OFWs to minimum wage earners had sought advice from him in achieving lifetime financial freedom.